Business-to-Business Markets and Buying Behavior Chapter 5 Business-to-Business Markets and Buying Behavior McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

After studying this chapter, you should be able to: Define the nature of business-to-business buying behavior and markets. Explain the differences between business-to-business buying and consumer purchase behavior. Recognize the different types of buying decisions.

After studying this chapter, you should be able to: Define the different stages of the business buying process. Describe the buying-center concept and the determinants of influence within the buying center. Understand the nature of government, reseller, and other institutional markets.

The Nature of Business-to-Business Buying Business-to-Business buying behavior: Refers to decision making and other activities of organizations as buyers. Business-to-Business buying is the selection of suppliers, sources, or vendors.

The Nature of Business-to-Business Buying Organizations fall into four categories: Business firms Government markets Reseller markets Institutional markets

Supply-Chain Management “The integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.”

Supply Management Supply Management: “The identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.”

Characteristics of Business-to-Business Buying Behavior Consumers buy for their own use and for household consumption. Business buyers purchase for: Further production (raw materials, components) Use in their firm’s operations Resale to other customers

Characteristics of Business-to-Business Buying Behavior Derived Demand: Demand for business-to-business products is often dependent on demand in consumer markets.

Evaluating Business-to-Business Markets: NAICS

The Importance of Business-to-Business Buying Two Key Reasons: The size of business markets offers many opportunities for marketers. Many firms are trying to increase profits by improving purchasing practices.

Trends in Business-to-Business Buying Selected Purchasing Trends 1998-2008 1. Electronic Commerce 2. Strategic Cost management 3. Strategic Sourcing 4. Supply-chain partner selection & contribution 5. Relationship management 6. Performance measurement 7. Global-supplier development 8. Third-party purchasing 9. Competitive bidding 10. Strategic supplier alliances 11. Win-win negotiation strategy 12. Complexity management

Productivity Improvement Outsourcing Corporate downsizing often involves downsizing of the purchasing function Reducing cycle time

Use of Technology B2B Exchanges: Private Exchanges: Organizational buying via the Internet. Private Exchanges: Those that link invitation-only buyers and sellers.

Electronic Commerce Applications in Purchasing Requesting proposals and price quotes. Posting bids. Transmitting purchase orders. Using Electronic Data Interchanges. Ordering with electronic catalogs. Seeking suppliers. Tracking delivery schedules. Managing contracts. Managing inventory. Paying invoices/making payments.

A Relationship Perspective

Customer Value Considerations Buyers are interested in suppliers that can add value to their business by: Continually increasing quality Lowering costs

Environmental Impact Buyers emphasize an Ethics Perspective by: Examining the costs associated with product disposal. Looking for ways to recycle or reuse products.

Types of Buying Decisions The Buying Decision Grid Type of Buying Newness of Information Consideration of Decision the Problem Requirements New Alternatives New task High Maximum Important Modified rebuy Medium Moderate Limited Straight rebuy Low Minimal None

The Business Buying Process

The Buying Center Buying Center: The makeup of the buying center Includes more than the purchasing department or the purchasing function; it is made up of people throughout the organization at all levels. The makeup of the buying center may vary as decisions change.

The Buying Center Gatekeepers: Sponsor: Control the flow of information and communication among the buying-center participants. Sponsor: Advocates purchase of a particular product of service.

Government Markets Government Market: Includes federal, state, and local government organizations that purchase goods and services. The government market is the largest in the world, with the United States federal government the largest customer in this market

Reseller Markets Reseller Market: Wholesalers Retailers Made up of firms that purchase goods and in turn sell them to others at a gain. This market includes: Wholesalers Retailers 3.5 million companies with more than 20 million employees make up reseller markets.

Other Institutional Markets Nonprofit organizations must also purchase goods and services to support their activities. These organizations include: Educational institutions Public & private hospitals Religious & charitable organizations Trade associations

Ethical Issues Ethics is a constant concern in business-to-business negotiations and transactions. Bribery takes many forms: Gifts from vendors to people involved in decision making “Money under the table” Promises for the future

Ethical Issues Reciprocity: When firm A purchases from supplier B who in turn buys A’s own products and services. Fairness, honesty, and trust should influence all negotiations and selection of suppliers or vendors. Firms pursuing global markets encounter ethical dilemmas.